A university that formally integrates the budget in the accounting system and uses encumbrance accounting orders some new computers that will cost approximately $20,000. To recognize this event the university should make which of the following entries?
A) Debit Expenditures $20,000; Credit Encumbrances $20,000
B) Debit Encumbrances $20,000; Credit Reserve for encumbrances $20,000
C) Debit Encumbrances $20,000; Credit Accounts payable $20,000
D) No entry required when the order is placed.

Question

Quizplus · Accepted Answer

When a university (or any governmental entity) using encumbrance accounting places an order, it records the commitment to spend funds by debiting Encumbrances and crediting Reserve for Encumbrances. This entry recognizes the commitment of funds before the actual expenditure occurs, ensuring that the budget is not overspent.

A University That Formally Integrates the Budget in the Accounting